SEC Corporate Governance

Corporate governance refers to a regulatory system that balances company, stakeholder, and government interests. [i] It assumes an agency relationship whereby one or multiple persons, including companies—agents—provide services on another’s behalf—principals. [ii] Here, principal beneficiaries entrust agents with a requisite fiduciary responsibility—relationship based on duty, loyalty, and trust in confidence—to act on their behalf.

Early MillenniumThe 21st Century spawned a new generation of modernization—manifest in computer digitization. In 2000, international investment exploded. Technology became the impetus. By year-end, nearly 1400 foreign companies spanning 55 countries reported with the SEC, accompanied by public offerings exceeding $211 Billion. [iv] Consequently, this paradigmatic technological transition appeared to reflect the “transformational changes” in corporate governance over time. [v]

The fiscal year 2002 culminated with the historic, high-profile Enron and WorldCom scandals, ushering in a wave of landmark legislation to tighten SEC regulatory reform. [xii] For instance, 43rd President George W. Bush authorized Congress to introduce the Sarbanes-Oxley Act of 2002, facilitating transparency through corporate responsibility. Sarbox provided, inter alia, the following internal control measures:

However, some of these past criticisms proved unwarranted due to contradictory evidence. For example, Congress implies certain 2002 legislation prevented “the SEC from collecting 5 times its annual budget in fees.” [xx] If true, this assertion presents a fact-checking issue, negating the earlier contention for questionable inaccuracy. Nevertheless, a “smaller budget despite pleas of underfunding from the SEC,” suggests noteworthy consideration according to former SEC attorney Hester Peirce. [xxi]

Moreover, the issue of staff size seems implausible. First, it assumes without warrant that staff size determines budget efficiency, neglecting other relevant factors plausibly assumed by competently managing a $12 trillion market. For instance, commissioners serve appointed terms by the President in facilitating impartiality, preventing undermined efficiency from ideological influence. Five commissioners serve 5-year tenures with no more than three permitted from the same party to limit partisan prejudice. [xxii]